Determining what is the value of a piece of commercial property will be your first step when you are considering buying commercial property, and in order to analyse a real estate like this for possible acquisition, you will first need to understand that the two most important factors in the equation are net operating income of the property and the capitalization rate, or the cap rate, that is currently prevailing in the market place for the kind of commercial property you want to buy.
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A commercial real estate analysis has three major sectors. These are income, expenses and debt, and you will need to compile and analyse each of these parts in order to understand the deal of buying commercial land. Another important factor is determining what you really want from this deal. For instance, do you want a passive income stream, or do you want the keep your property for a long time in order to build some wealth, or maybe you want to fix it up and sell it to make a quick profit.
Analysing the income
You should verify the rent that the commercial property is receiving and then compare it to the current market rents. Do this by calling commercial real estate brokers in the market area. Then you should calculate the income on an individual tenant basis as well as the per square foot basis every month or every year. If there is a tenant on the property on a short term lease, then you should adjust the rent to equal the current market rate, as well as review and verify the income that is being received on the spread sheets, and maybe plan ways in which you could increase the income.
Then analyse your expenses
By using actual and true operating expenses in your analysis would probably be the best way in which you analyse expenses if they are available. In order to get the most reliable expense data, then call up your property manager who manages similar properties in the area for a good indication. When you are analysing the expenses, remember to analyse them as a percentage of the income and expenses per square foot. Then compare these numbers to industry and local data. When you analyse the taxes, make sure that you are adding in the new property taxes based on our purchase price. Once you have collected all your date, go through it all and try and find ways that you will be able to decrease the expenses that you will have once you have bought the property.
Analyse the debt and determine the value of the property
When you find a deal that you want to buy, you should speak to your bank or lender to figure out how much money you will need to deposit, as well as the type of loan and interest rate that this property represents. Once you have determined the income, what your expenses will be as well as your debt, you are then read for the following step and that will be figuring out what the capitalisation rate will be, the cash flow, the cash on cash return as well as the net operating income. Also include a break-even analysis on your commercial property to understand its value to you.